Rabo ups ag price hopes, but cautious on prospects
Rabobank upgraded forecasts for grain prices, and ditched expectations of below-$12-a-bushel soybeans, but remained downbeat on prospects, and was cautious on coffee futures too.
The bank said that a continuation of the "heightened volatility" evident in agricultural commodity markets in recent weeks - thanks to weather setbacks in Brazil and the US, and the Ukraine crisis – was "not out of the question".
"These weather and geopolitical uncertainties look likely to persist – or even exacerbate, with the probably development of El Nino, and increasing instability driven by BRIC countries," an acronym for Brazil, Russia, India and China.
However, these factors, for many crops, appear merely to have delayed a decline to much lower prices to the end of the year or early 2015.
'Price rallies difficult to sustain'
For corn, although Rabobank lifted its forecast for Chicago prices in the April-to-June quarter by $0.40 a bushel to $5.00 a bushel, a little below current levels, it maintained ideas of a sharp fall ahead.
Corn prices will average $4.10 a bushel in the first quarter of next year, the bank said, well below the $5.19 1/2 a bushel that March 2015 futures were trading at on Wednesday.
"In the absence of severe disruptions to planting or pollination, price rallies will be difficult to sustain in the short-term," the bank said, foreseeing "sideway price movement" for now.
Looking further ahead, it forecast that US corn sowings will exceed the current US Department of Agriculture estimate of 91.7m acres by "at least" 500,000 acres, terming the current pace of planting, while delayed, "normal relative to the last five years".
The USDA reported US corn sowings as of Sunday at 19% complete, behind the average of 28%, but well ahead of the 5% completed a of the same time in last year's particularly slow planting season.
Wheat, soybean prospects
For wheat, the bank hiked its forecast for average Chicago futures prices this quarter by $1.10 a bushel to $7.00 a bushel, citing the dryness besetting the US winter wheat crop, and political instability in the former Soviet Union.
However, the prospect of a rise in world stocks of the grain over 2013-14 is "expected to have more weight" as exports begin "to trade more freely" with the improved North American weather, Rabobank said, sticking with a price forecast of $5.60 a bushel for the October-to-December quarter.
And the bank - while lifting its forecast for soybean futures for the current and July-to-September quarters by more than $2 a bushel above$14 a bushel, saying the US "will not be able to import enough" to bolster it meagre supplies – forecast futures tumbling to $12 a bushel in the October-to-December period.
That implies a drop deeper than that being factored in by futures, with Chicago's January 2015 contract trading at $12.52 1/2 a bushel.
'Timing is everything'
Arabica coffee futures will also retreat, Rabobank said, lifting its forecast for prices in the current quarter by 20 cents a pound, but to 190 cents a pound below the futures curve.
Values will enter 2015 at about 170 cents a pound, below the 218.45 cents a pound being factored in by New York's January 2015 contract on Wednesday.
Still, the bank highlighted the timing of the El Nino weather pattern, seen by meteorologists as a probability for this year – and which typically bring excessive rains to Brazil, the top coffee producing country - as having a big influence.
"If an El Nino starts in July as forecast, it is likely to bring above-average rainfall to Brazil's arabica and conillon [robusta] crops during the second half of 2014, improving the prospects for the 2015 crop and potentially topping up reservoirs
"However, timing is everything, and excessive rain over the next few months would be expected to drive quantity and quality downgrades [to the 2014 harvest]."
Meanwhile, the El Nino, linked to warm and dry weather in Asia, could "accelerate the harvests" in Indonesia and Vietnam, key producing countries for robusta coffee, "whilst potentially paring back yields for this season and the next".
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